Nexus Energy wins extension on Crux handover

Nexus Energy
chief executive
Richard Cottee
will set his sights on finding a partner for the $1 billion Crux liquids project after successfully overcoming one of the company’s biggest hurdles.

Nexus yesterday won a crucial three-year extension to a handover deadline at Crux, reviving hopes for the project’s development.

“Crux is going to realise its inherent value," Mr Cottee said. “There’s no doubt in my mind that this asset is a materially good asset."

Nexus currently holds the rights to produce condensate out of Crux, while Royal Dutch Shell owns the rights to the project’s gas. Nexus had been scheduled to hand over the liquids rights to Shell by December 31, 2020, leaving the company insufficient time to economically bring the project into production.

Under the new agreement, Nexus will hand over the rights on December 31, 2023.

The extension has come at a cost, with Nexus to pay Shell an option fee of $675,000 and an exercise fee of $US34.3 million upon a final investment decision on the project. Shell will also pick up an overriding 3.5 per cent royalty payment.

Mr Cottee said the company was well advanced in securing financing for Crux’s development, with Nexus having already received “solid indications" for debt funding.

He said he expected around 60 per cent of the project’s capital expenditure to be funded through debt, with the remainder likely to be funded through equity raisings.

Related Quotes

Company Profile

Mr Cottee said Nexus would look to bring in third parties as partners, reducing Nexus’s stake in the project to between 40 and 75 per cent, but stressed that any deal would be “because we want to, not because we have to".

Crux was widely shopped around in 2008 and 2009, before Mr Cottee joined the company, as Nexus struggled to stay afloat. The 2020 expiry date in part contributed to Nexus’ failure to strike a deal.

Nexus will now work to make a final investment decision on Crux by the end of next year, clearing the way for production by 2014. The path to production will be expedited by the extensive engineering work previously done by Nexus, plus the $60 million in long lead time items it already has warehoused.

Both Nexus and Shell risked being stripped of Crux under the government’s use it or lose it laws if the project was not brought into production by 2014.

Nexus has been regularly suggested as a takeover target in recent months, and Mr Cottee confirmed the extension rights would be transferable in the event Nexus was taken over. “We don’t know if this is act one of a two act play, except that we are absolutely and entirely convinced it will lead to sustained shareholder value," he said.

BBY analyst Scott Ashton said the deal with Shell was “very good news" for Nexus. “It goes a long way to unlocking a commercial hurdle put in place by previous management," Mr Ashton said. “It further underpins Richard Cottee’s credibility to deliver on what he has stated he would do, despite a view that Nexus’ commercial leverage over Shell is non-existent."

Shares in Nexus have almost doubled since Mr Cottee joined the company in May. Nexus shares fell 2.5¢ to 50¢ yesterday.